The Fed Didn’t Dangle the Interest Rate Cut Carrot
As I’ve written to you before, the Fed is endlessly dangling the carrot of a potential rate cut right in front of us.
So much so that as Wall Street has gotten hopeful and the markets have run over the last year, we’ve seen more boom from the teasing of a rate cut than we would have ever seen from an actual cut in interest rates.
Well, earlier today Fed Chair Jerome Powell spoke in front of the Senate Banking Committee and did something very interesting… he never dangled the carrot of cutting interest rates.
In his testimony, Powell referenced that inflation reports covering the first three months of this year did not boost the Fed’s confidence that inflation was coming under control.
However, he went on to share… “The most recent inflation readings, though, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2%”.
Powell also shared that the job market has “cooled considerably.” And the economy’s growth has slowed after a strong expansion in the second half of 2023.
He also went on to discuss the job market and shared that it “is not a source of broad inflationary pressures for the economy” despite the unemployment rate rising for a third straight month to hit 4.1%.
But something really interesting was absent from Jerome Powell’s testimony today… He never mentioned when we could expect rate cuts — something Wall Street was eager to hear.
His comments on rate cuts were brief and only in response to a question from Democratic senator Jack Reed of Rhode Island. Powell shared:
“It doesn’t seem likely that the next policy move would be a rate increase. As we make more progress on inflation … we begin to loosen policy at the right moment.”
Many investors and much of Wall Street believe that the first cut in interest rates will come at the central bank meeting in September.
Whether that will happen or not, I have no idea. But it is interesting how the Fed and Jerome Powell have seemingly started to realize that both Wall Street and everyday investors are getting sick of the Fed dangling the interest rate cut carrot with no action backing it up. So much so that there wasn’t a mention of the topic on one of the most public of stages.
Tomorrow, Powell will speak to the House Financial Services Committee and it will be interesting to see if he holds the same tone and stays away from talk of rate cuts.
— Nate Tucci
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